The Tax Professional’s Guide to a Paperless Tax Workflow

Recommended Reading: Technology Accelerates Competitive Advantages

In this article, L. Gary Boomer, CPA, discusses the importance of technology for improving performance and meeting client requirements. One of the four areas of technology he evaluates is Process and Workflow, noting that firms that strive to improve processes and utilize digital workflow tools have several advantages over those that still use mostly paper. He also highlights process and workflow technologies that will increase efficiency if a firm changes its processes, trains staff, and ensures compliance.

Click here to read the article

Scanning Tax Documents: High Quality Input Yields High Quality Results

If you’re going to go paperless, start by creating high quality PDFs of scanned documents.  

For best results, scan original forms in black and white, at 600 dpi, in duplex.  It’s as simple as that. Whether you’re scanning documents for archival, scanning before preparation, or using tax document automation software to organize and extract data for you, these four requirements are at the core of document quality. 

Here’s why:

• Original Forms - Every time a document is copied, the image quality is degraded. The further removed you get from the original document, the “noisier” the document becomes. Noisy documents are hard to read.
  
  
• Black and White - Though color and grayscale may look more readable to the human eye, scanning your documents in black and white will ultimately provide clearer images.
  
  
• 600 dpi – If you’re using tax document automation software, higher image resolution will improve the accuracy of document organization and data extraction. High quality input generates high quality results. Likewise, low quality input will lead to lower accuracy in forms recognition and extracted data. Because software is “reading” the documents and extracting relevant data, it is crucial that the scanned images you submit for processing are of the highest quality and are as clear as possible. Submitting documents with higher resolution will also provide up to 50% faster turnaround. 
  
  
• Duplex – Duplex is just a fancy word for scanning both sides of the page at once. Scan both sides and you won’t miss any important information on the backs of pages.

Get these four points down and you’re pretty much covered. If you want to take it a step further—particularly if you’re using software to organize and extract data from the scanned documents—here are some more tips to get the highest quality images:

• Give Scanned Documents the “Readability Test”:  If your eyes are straining to read a document, software will likely do the same. Noisy, hard to read documents will make it difficult for the software to read field labels and data contained therein. If software can’t read the data, it can’t extract it and populate it into the tax return.  
  
  
• Look out for Distortion—Scan the Document at its Original Size. For best results, the size of the scanned document should correspond roughly to the size of the original document. If the size of a document is greatly reduced or expanded when scanned, it increases the chances that the scanned image will be distorted. Distortion may also be caused by scanning documents that are folded or crumpled, and by documents that were caught in a paper jam while being scanned.
  
  
• Scan Each Document to Its Own Page. If more than one document is scanned to the same page, only the dominant form, as determined by the software, will be bookmarked. Visibility of the less dominant form(s) will be lost, as only one bookmark will be generated per page. For scan-and-populate users, data will not be extracted from either form.
  
  
• Avoid Submitting Documents with Faint or Faded Text. Not all original tax documents are suitable for processing by tax document automation software. Going back to the “Readability Test”, faint, faded text is hard to read and therefore may not be properly classified. If a document cannot be classified, the data cannot be extracted by scan-and-populate software.
  
  
• Avoid Black Backgrounds, Ink Bleeding, and Smudging. Black backgrounds can be created by leaving the tray cover open during single page flatbed scanning. Black backgrounds, ink bleeding, and smudging are considered “noise” and can slow processing.
  
  
• Avoid Submitting Clipped or Cut Forms. Clipped or cut forms may be missing important data that the software needs to identify and classify the form, and to extract the tax data.
  
  
• Scan Multi-Page Documents Together. Multi-page documents, like brokerage statements and K-1’s, should be submitted in logical order, where possible. Most software will not reassemble a multi-page document that has been scattered throughout an input PDF.

Now that you know what to look for, it will be easy to spot documents that won’t make the cut before being processed by tax document automation software. Download our free tutorial to learn more about best practices for scanning tax documents.

Using Scanned Tax Documents to Prepare Returns: Setting up Adobe Acrobat for Tax Preparation

Moving to a paperless tax workflow isn’t an exercise in change for the sake of change—it’s a matter of efficiency.  When it comes down to it, there’s no reason you can’t work with digital tax workpapers the same way you would with paper ones.  Training your staff to use the software tools that make it easy to work with electronic documents will ultimately make the difference in time savings during tax season.

One of the most basic software tools available to your firm is PDF viewing and editing programs, like Adobe® Acrobat®.  I’m sure you’re familiar with PDF viewing software, like Adobe’s free Reader® program, but it’s the Acrobat Standard and Pro products that will allow you to leverage the types of functionalities you need to make tick marks, comments, and annotations on the electronic workpapers. (To learn exactly which product does what, see this detailed list of Adobe Reader vs. Acrobat capabilities)

We’ll start with a very basic overview of the Acrobat User Interface. The Acrobat User Interface consists of three main areas—the Document Area, the Navigation Panels and the Toolbars.  

Navigation Panels: Navigation Panels allow you to quickly find any bookmark, comment or page in a set of PDF source documents. There are three Navigation Panels that are frequently used by tax professionals—Pages, Bookmarks and Comments. Simply click on the icon for the desired panel or use the View menu to access a Navigation Panel.

The Pages Panel shows the scanned images in the order that the pages were scanned. This panel can be used to add or combine separately scanned pages to a document—which is useful for merging additional tax documents that arrive late, after the return has already been started.  Just click and drag the pages to rearrange the order.

The Bookmarks Panel makes it easy to navigate through the document with bookmarks, which are virtual links to pages within the document.  The easiest way to bookmark electronic source documents is to use a tax document automation solution, which will automatically bookmark your clients’ documents in a consistent order that matches the tax preparation process, with the document issuer’s name on each bookmark (an example of a bookmark label is: “1099 INT # 1  COUNTRYWIDE HOME LOANS”). You can also manually bookmark pages in Acrobat Standard or Pro (keyboard shortcut Ctrl+B).  

Bookmarking tax documents is a key time-saving capability that is unlocked by going paperless.  The bookmarks let you quickly jump to specific documents within the PDF, without having to wade through tens—or even hundreds—of documents to find the tax data you’re looking for.

Like the pages panel, you can click and drag bookmarks to rearrange the order.  One thing to note is that the order of the bookmarks may not match the order of the actual pages in the document, so moving a bookmark will not automatically change the order of the pages.

The Comments Panel lets you easily find and review any tick mark or annotation in a set of PDF source documents. This feature is primarily used during the review process. Click on any comment in the comments panel to jump to that annotation in the document.  Note how each comment includes the user name of the person who inserted the tick mark or annotation. This makes it easy to review comments of specific preparers. The comments panel also provides the ability to sort comments by different criteria, such as author, date, and tick mark color.

Before you use the Comments Panel, you’ll have to familiarize yourself with Toolbars that allow you to create comments and annotations.  To customize the toolbar, select View in the main menu, then select Toolbars to choose and select which tools to use. You can customize the toolbar for your own needs, but some of the most frequently used toolbars for tax professionals include:

1. Comment & Markup: Tools for adding tick marks and annotations
2. File: Open, save and print files
3. Find: Search a PDF document
4. Page Display: Change document display settings
5. Page Navigation: Quickly move to any page
6. Select & Zoom: Easily zoom in and zoom out on any page
7. Tasks: Create and combine PDF files
8. Typewriter: Add annotation by typing text anywhere in the document.

So now you should have a good idea of how to find the primary functionalities you will be using in Adobe Standard and Pro.  We’ll take a deeper look at how to create tick marks and use comments in future blog posts, but until then you can download our free white paper, Five Essential Techniques for Preparing Returns Using Scanned Tax Documents, to learn more about using Adobe to prepare and review tax returns.

Scanning Tax Documents: Considering the Benefits of Front-End vs. Back-End Scanning

The introduction of workflow automation tools—like tax document automation software—presents some exciting possibilities for streamlining workflow and improving productivity.  Firms that have automated workflow by going “paperless” will tell you that implementation is best handled in phases—the first major transition being the adoption of tax document scanning. 

Most tax professionals agree that scanning tax documents is more productive than the alternative—hours in front of the copy machine, burning through reams of paper. But the real question is not to scan or not to scan—it’s when to scan. There are two basic camps of firms that have already incorporated scanning into their workflows:  firms that scan on the front-end and firms that scan on the back-end.

Scanning on the Front-End

When you scan sets the stage for the level of efficiency gains your firm can realize as a result. Firms that scan tax documents on the front-end position themselves for a completely automated and highly efficient paperless tax preparation process.  Consider this:

1. Scanning tax documents up‐front creates a digital library of docs that can be immediately accessed throughout tax season. With source docs stored electronically, support staff can fulfill client requests in seconds during the busy season—locating the electronic file and emailing it to the client in a few clicks of a mouse—without interrupting billable work.

2. By scanning documents initially, firms can make use of tax document automation systems to automatically extract and import tax data from scanned tax documents, and create an organized, bookmarked, and labeled PDF of source docs. This step can eliminate manual data entry and paper handling altogether, as documents may be scanned in any order before uploading for bookmarking.

3. Digital files can be stored within the firm’s DMS or network hard drive for final archiving. This helps firms gradually reduce the use of paper and eventually phase out file cabinets.
   

Scanning on the Back-End

Back‐end scanning also provides electronic copies of client files for archiving purposes, which eliminates manual filing at season end and reduces the need for physical storage.  However, with back‐end scanning, efficiency is only realized at the end of the process. 

Scanning on the back-end eliminates the possibility of automating the tax process with automatic data entry and document organization.  Relying on paper files from the start, staff must manually organize source documents and use paper copies to prepare returns and fulfill client document requests during tax season. This is not only time‐consuming for staff, but it also means longer response times on the client end.

Develop a Plan and Stick With It

Whether you decide to start scanning tax documents on the front- or back-end, make sure you develop a plan to get started.  Who is responsible for scanning?  Where will you save the files?  Will the file names follow a specific naming convention?  These are the types of questions you should consider before applying changes to your workflow.  Having a plan will make for a smoother transition and provide a cohesive structure for your staff to follow—no exceptions.

Tax Document Automation: Transforming Consolidated Brokerage Statements into Excel® Spreadsheets

The tax document automation movement hinges on time savings, efficiency gains, and standardization of workflow. The way to trim the workflow ‘fat’ is with automation of document organization and data entry.  The two basic categories of tax document automation are scan and organize and scan and populate software solutions.   We’ve already discussed these basic functionalities in our “Tax Document Automation: What is it and Why Should I Care?” blog entry.   As part of the scan and populate category, we have identified another unique solution to deal with the stock trades in your client’s brokerage documents.

Extraction of trade data is the “low hanging fruit” of the scan and populate category.  In the 2008 tax season, Copanion processed more than three million tax forms.  75% of the relevant data extracted from these forms was trade data.  Clearly, software that can automate data entry of trade details can replace the lion’s share of manual entry of tax data.  

With scan and populate software solutions, data is automatically imported into the corresponding data field in your tax preparation software.  But sometimes it’s easier to review data and tie it out before it’s entered into your tax software program.  Here’s where software can provide the best of both worlds.  Copanion’s GruntWorx Trades product will extract data from scanned 1099 Consolidated Brokerages Statements into a standard Excel® spreadsheet file.  By extracting into a common, easy-to-use file format (every accountant knows Excel), the software allows data manipulation before it is uploaded into your tax preparation software. 

GruntWorx Trades software extracts the key trade details, such as Quantity, Security Description, Purchase Date, Sale Date, Sale Amount, Purchase Amount, and Gain/Loss, and populates this information into an Excel spreadsheet, placing each brokerage account onto a separate tab. Each brokerage account can then be tied back to the 1099-B total for that account. The software also separates out stock trades that are missing a cost basis so you can quickly copy and paste the missing data fields and send them off to the client to complete. 

This is an example of GruntWorx Trades output, where trade details have been extracted from Consolidated Brokerage Statements.
 

Once all of the trades have been reviewed and tied out, the standard Excel file makes it possible to import the trades data into your tax preparation software (providing the software supports an import functionality), saving preparers from keying in tens, hundreds, or thousands of individual trade details. 

Tax preparation software packages that support import of trade details include GoSystem Tax RS, Lacerte, UltraTax, and CCH Prosystem fx Tax.

CPA2Biz and Copanion Announce Strategic Alliance to Help CPA Firms Increase Tax Preparation Workflow Efficiency

We're very excited to announce that Copanion has partnered with CPA2Biz to add tax document automation to the CPA2Biz Trusted Business Advisor(SM) platform.

"Our Trusted Business Advisor Solutions platform is about bringing web-based technology to firms to increase efficiency and enable more strategic client relationships," said Erik Asgeirsson, CEO of CPA2Biz. "Copanion's GruntWorx® software allows firms to standardize tax preparation workflows, freeing up partners and staff to focus more time on client consultation, a higher-value service for the firms and clients."

"We're very excited to be part of the CPA2Biz platform and enhance our reach into the profession," said Ed Jennings, Copanion CEO. "Existing firm customers are reporting a reduction in tax preparation time of up to four hours per return, helping to accelerate efficiency and profitability significantly. CPA2Biz recognizes the value of our solution and the positive impact it has on a firm's workflow, which is why Copanion was selected as the exclusive provider of tax document automation technology."

To learn more about this partnership, read the press release or visit www.cpa2biz.com/gruntworx.

Tax Document Automation: What is it and Why Should I Care?

In addition to "paperless tax workflow", another term that keeps popping up in the industry is "tax document automation."

What does tax document automation do?

As a tax practitioner, I'm sure you're familiar with the proverbial "shoebox" full of client source documents. Clients come in with a disorganized stack of documents, including IRS forms, receipts, and maybe even a take-out menu. They drop it on your desk and say "Here—you deal with this." Sound familiar?

If you haven't begun scanning tax documents before tax preparation, your next step would be to manually sort the documents into the order of the tax preparation process and use them for reference while you manually key the tax data into your tax preparation software.

With your new paperless tax workflow, your next step is to scan the documents into a PDF file. Here's where the tax document automation comes in. Tax document automation allows you to take that stack of client source documents, and scan them as-is into a PDF file to be automatically organized for you. No organizing the documents pre-scan, no leafing through the pages to make sure they're all facing the same direction, and no pulling out documents that are irrelevant to the tax return. All you have to do is pull out any staples and/or paper clips before scanning and you're good to go.

There are two basic categories of tax document automation solutions: scan and organize and scan and populate.

Scan and Organize

Scan and organize software automatically organizes, bookmarks, and labels the tax documents into a PDF file. The bookmarks are labeled with the name of the document issuer's/payer's name, and match the order of the tax preparation process, so you just have to click down the line of bookmarks to quickly find all the information you need.

Scan and Populate

Scan and populate software goes one step further to extract the tax data from the scanned tax documents and automatically import the data into your tax preparation software package. That's right—scan and populate software eliminates manual data entry. It also provides the organized, bookmarked and labeled PDF to cross-check the imported data.

Setting aside the obvious advantage of not having to manually sort through paper files (and the immediate drop in tax season paper cuts); there are some serious process and workflow benefits to using this kind of software. Tax document automation allows you to:

• Increase productivity by saving time finding, entering, and reviewing client data
  
  
• Standardize workflow with consistently-organized tax workpapers—no matter what order the documents were scanned in
  
  
• Hand off document organization to support staff—tax document automation software requires no knowledge of tax documents, making it easy for support staff to scan and upload documents
  
  
• Free preparers, reviewers, and partners to focus on value added activities

Now it's time to ask yourself: does tax document automation make sense for your tax practice? Read our free white paper, 10 Questions to Ask When Considering Tax Document Automation, to find out.

Tax Document Scanning 201: Using Software Provided with Your Scanner

So you’ve gone out and purchased a scanner—now it’s time to figure out how to use it. The purpose of this entry—courtesy of Sarah Smith from Fujitsu—is to make sure that you are getting the most out of your scanner and the software that comes with it.

Guest blogger Sarah Smith writes:

In a perfect world, we would be working with perfect documents all the time.  But, like most users, you probably have old documents and new documents—of all different sizes and all different qualities—and really do not want to go through each and every one in order to make sure they are all facing the right direction.

If this is the case, you are going to want to dust off the image enhancement software that came with your scanner. Because I know Fujitsu scanners best, this entry is going to focus on the software that comes bundled with Fujitsu scanners. But keep these image enhancement features in mind when making purchasing decisions for new scanners, or when using scanners that have already been purchased.

All Fujitsu fi-series scanners (beginning with the fi-6130 and up) come bundled with a few basic pieces of software that will make your life easier when it comes to document imaging. The two most important pieces for scanning tax documents are Kofax VRS and Adobe Acrobat Standard. These software licenses come free in the box with every Fujitsu scanner, which is a HUGE value to you.

First, let’s talk about Kofax VRS. VRS stands for Virtual ReScan. Translation to you: amazing software that does all of the heavy lifting when it comes to scanning documents. VRS works behind the scenes to perfect the image quality of every document you scan.

Here are some of the significant “I can’t live without” features included in Kofax VRS:

• Crop – The software crops images so that no matter what size document you scan, all you see is the document—no borders
• Rotate – Images are automatically rotated to face the correct direction/page orientation
• De-skew – If a document is scanned at an angle, the software will automatically de-skew it
• Blank Page Deletion – If some of the documents are double sided and some are not, the software will automatically remove the blank pages from the finished set of images
• Advanced Clarity – Wrinkled and other imperfect source documents are no match for VRS!  Advanced Clarity will process documents with complicated, textured backgrounds.
• To read more detailed descriptions of the features included with VRS software, visit: http://www.kofax.com/vrs/features.asp

Basically, image enhancing software does all of the prep work so that all you have to do is throw (or place) your documents in the ADF (Auto Document Feeder), and your messy, unorganized paper has been transformed into picture-perfect electronic files. 

Next up, Adobe Acrobat Standard. You probably already know what this is and have Acrobat viewing capabilities (Adobe Acrobat Reader)… but do you have a full version of Adobe Acrobat Standard that allows you to actually create and edit PDF documents? Adobe Acrobat Standard makes working with electronic documents easy by creating an environment where scanned documents can be processed, edited and shared electronically. 

Among other capabilities, Adobe Acrobat Standard allows you to:

• Create and edit PDF documents
• Add tick marks to electronic PDF workpapers
• Add comments and other annotations from multiple users on PDF documents
• Add, edit, and move bookmarks (electronic links) to any page within a PDF file
• Combine PDFs from multiple sources or scans

(Editor’s Note:  Detailed tutorials on working electronically with PDF source documents will be covered in later blog posts.  Stay tuned!)

In summary—some say that they don’t need the functionality provided by image enhancement software, but that is probably because they have never used it! Once you begin using document scanning software with these features, you will never want to scan tax documents without them again.  

Learn more about using scanned client source documents to prepare returns.  Read our free white paper, Five Essential Techniques for Preparing Returns using Scanned Tax Documents.

Key Questions to Consider When Choosing a Tax Document Scanner

Sarah Smith from Fujitsu guest blogs on how to choose a scanner that best suits your office environment:

This article is designed to help you ask yourself the right questions when you are in the market for a new document scanner.  I hope you find it helpful!

Key Questions to Consider When Choosing a Document Scanner:

1. Do I need to scan both sides of a document?  If so, you’re looking for a duplex scanner.  A simplex scanner scans only one side of a page. A duplex scanner scans both sides at once. This distinction can make a significant difference in maximizing the time-saving benefits of the scanner you choose.
   
   
2. Do I need to scan multiple documents at once?  When scanning tax documents, you’d ideally like to be able to throw a stack of documents into the scanner, hit scan, and voila!  You’re done.  In this case, you’re looking for an Auto Document Feeder (or ADF) scanner.  Fujitsu ADF scanners can scan documents ranging from 2”x3” to 12”x18” in length and from 11 to 56.2 lb. in weight (standard printer paper is weighted at 20 lb. per 500 sheets). If you are scanning anything thinner than tissue paper or thicker than an embossed credit card—or if you often like to scan pages out of books or periodicals—then you probably want to consider a scanner that has both ADF and flatbed functionalities.  
   
   
3. What speed should I be looking for? Scanners of today range in speed from 10 pages per minute (that is 20 images when scanning both sides) to 120 pages per minute.  Focus on the speed of the scanner when scanning at 300dpi in black and white.  This is the optimal setting for scanning tax documents, and therefore the setting you will be using most.
   
   
4. Am I scanning documents into a specific software application? Many software applications cannot communicate with scanners unless the scanners are TWAIN or ISIS compatible.  TWAIN and ISIS are standard drivers that basically tell the hardware (your scanner) how to communicate with the software you’re connecting to.  If a scanner does not specify compatibility, do not assume it is TWAIN or ISIS compatible!  More likely than not, you will be left with an incompatible scanner.
   
   
5. How many documents do I intend to scan per day?  Are you scanning less than 2,000 documents per day? If so, then you are looking for what we call a workgroup scanner. These scanners are typically small in size, yet still fast and powerful.  Their small size allows them to fit easily on a desktop, so the primary user doesn’t need to get up from his or her desk to do the scanning.  If you are scanning between 2,000 and 4,000 documents per day, we recommend you consider a departmental scanner. Departmental scanners are still usually small enough to sit on the desktop, but work at a much quicker pace. Because of their speed, they can even be set up in a centralized location for multiple users to access.
   
   
6. How much should I expect to pay for a quality document scanner? Workgroup scanners are typically priced between $800 and $1,200. Departmental scanners range between $1,500 and $2,000.
   

As you can see, there are several factors to consider when deciding which scanner is best for your firm. Rest assured that, though there is a lot to consider, there are people here to help you! If you have any questions around finding a device that is right for you—or any other questions specific to Fujitsu scanners—please contact the Fujitsu Pre-Sales Support Team @ 888.425.8228 or email them @ fujitsu_inside_sales@fcpa.fujitsu.com.

Where do I go from here?

Now that you know what to look for, here are a few options from industry-leader, Fujitsu, for you to keep in mind when shopping around:

Workgroup Scanner:  An ideal workgroup scanner is the Fujitsu fi-6130.  This is an ADF, duplex scanner that can scan up to 30 pages per minute (60 images per minute, both sides) at an image resolution of 300dpi.

Departmental Scanner:  A great departmental scanner is the Fujitsu fi-6140.  This is an ADF, duplex scanner that can scan up to 40 pages per minute (80 images per minute, both sides) at an image resolution of 300dpi.   

Both of these scanners are perfect for tax document scanning, and can be purchased at a special Copanion discount from Fujitsu premier partner, 1st-in-Scanners.

Scanning 101: Basic Settings for Tax Document Scanning

The first step in going paperless, and the heart of all paperless tax workflows, is scanning documents.  The documentation you receive from clients will continue to be paper-based—and all of that paper has to go somewhere before you can start working with it digitally.

But not all scanning is created equal.  The image quality of scanned documents starts at the scanner level.  If your scan settings are not optimal for scanning tax documents, the image quality of the resulting scanned document will be lacking.  Set your scan software to the following basic image specifications to ensure you always scan your documents right the first time.

• Scan to a PDF.  To create a PDF from your scanner, choose File > Create PDF > From Scanner in Adobe® Acrobat®, or any industry-standard PDF writer.  You can also choose whether you’d like to create a new document or add the scanned pages to an existing document.

• Scan at 600dpi.  Make sure your image settings are set to scan the document at a resolution of 600dpi (this is not the same as scanning at a lower resolution and then saving at 600dpi).  This setting is especially important if you’re planning to use a scan-and-organize or scan-and-populate tax document automation solution.  Software that “reads” and extracts data from scanned tax documents may not be able to identify the text on low resolution images.

• Scan in black and white.  Scanning in black and white will create smaller files, so they’ll take up less space on your hard drive or in your document management system (DMS).  And again, if you’re using tax document automation software, this scanner setting will provide clearer images for processing—and they’ll take less time to upload.

• Scan the original documents. Every time a document is copied, the image quality goes down. The further removed you get from the original document, the “noisier” the document becomes—and the harder it is to read.  For best results, scan the original source document, as received by the client.  Avoid using copies of client documentation—especially faxed copies, which are very low quality.

And finally, automatically organize your scanned client source documents.  Though this doesn’t exactly fall under the “Scanning” heading, it will change the way you scan documents.  If you know you’re going to be using a tax document automation solution, to automatically index and organize your client’s source documents, you won’t need to sort the documents before you scan them.

GruntWorx Organize allows you to scan a stack of disorganized client documents and will automatically identify, organize, bookmark, and label each document with the document issuer’s name on each bookmark.  Using GruntWorx Organize will also allow you to completely hand off the organization and scanning to support staff, so your preparers can focus on more value added activities.  Best of all, you can try 5 returns free to evaluate how the product works and how it can fit into your paperless tax workflow.

To learn more about the do's and don'ts of scanning tax documents, download our free tutorial, Best Practices for Scanning Tax Documents